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Lucent Strategic Land Fund – Liquidity Position
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In light of the difficulties recently experienced by several funds that have led to their suspension or closure I wanted to reiterate the robust controls that the Lucent Strategic Land Fund (LSLF) has in place to ensure its continued financial well-being, particularly with regard to fund liquidity.
Admittedly real asset funds do not have the same liquidity as a daily traded equity fund. This is something that investors should always bear in mind. Liquidity therefore has to be carefully managed. This is an area the Investment Advisors and the Fund have to plan for, both during the initial submission of the file to the regulator and on an on-going basis.
The LSLF fund is domiciled in Luxembourg and is regulated by that country’s financial services authority, the Commission de Surveillance du Secteur Financier (CSSF).
LSLF’s Directors take the management of the Fund’s liquidity very seriously indeed. LSLF has the capability to call on a 30% liquidity margin. This is a significantly higher margin than property funds typically have. A minimum of 10% of the Net Asset Value (NAV) of the fund is always maintained in cash. In addition, the Fund can facilitate access of up to 20% of the NAV in order to meet, if needed, exaggerated redemptions. It is able to do this because the LSLF does not use leveraging for asset acquisition. For clarity, the Fund does not use bank debt to finance acquisitions.
An important competitive advantage the LSLF has over and above other types of property funds is the divisibility of land. This, together with the fact the Fund’s land assets are not leveraged means that the LSLF can, if need be, sell off part of a site. Indeed larger projects such as the Lincolnshire Lakes project are capable of, and planned to be, multi exit deals with the phased delivery of the asset to national housebuilders and commercial participants. This provides the Fund with, in effect, a ‘rolling liquidity’.
Furthermore, the above phased sale capability, in conjunction with the lack of leverage, gives a competitive advantage over commercial property funds. Whilst the LSLF can sell off part of a site, a property fund, that has leverage on a 30-story office block, may find it difficult to sell, say, 15 floors.
All of the above make the LSLF’s liquidity position a robust one.
Liquidity is recognised as an extremely important issue by the Directors of the LSLF and is managed in a manner that has been found to be satisfactory to the institutions with whom we deal.
~ Chris Westerman, Lucent Group UK
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